4/12/2012

Lobbyists fight to weaken graft rules

Natural resource companies are prevailing in a political battle to water down tough European anti-corruption rules that would require them to disclose payments made to governments for individual projects.

A majority of European Union member states – including the UK and Germany – are backing a less stringent alternative that does not force oil and mining companies to fully break down what they pay state authorities.

Jamie Drummond, head of the One Campaign, that seeks greater disclosure, described it as “a big let off for big oil”.

Tougher reporting rules are designed to shine a light on transactions for oil, gas, mineral or forestry rights where proceeds are squandered by governments, rather than reinvested in local communities.

But companies argue that total transparency would place a heavy administrative burden on business, expose commercially sensitive information and damage the competitiveness of European companies compared with their Chinese competitors.

The European Commission last year proposed a scheme that allowed for payments for specific projects to be tracked, with reporting requirements that broadly matched the US approach enacted in the Dodd-Frank Act.

But the provisions were strongly opposed by Germany and won the support of only a handful of member states, which must agree the proposal with the European parliament for it to become law.

EU ambassadors last week coalesced around a less strict Danish plan requiring total payments to central and local government to be disclosed. A list of projects in a country would be published, but without corresponding payments. Only France and Belgium opposed the compromise text.

A final agreement is expected in the summer, before talks begin with the more pro-transparency European parliament.

Simon Henry, chief financial officer at Anglo-Dutch oil and gas group Shell, said he was “pleased” member states were “considering country and government-level based reporting as a clear, reasonable and consistent approach”.

Any compromise would be resisted by the Commission and would disappoint campaigners for stricter rules, such as the philanthropists Bill Gates and George Soros.

Mr Drummond said the compromise would “undermine the main purpose of the transparency legislation – to help citizens in poor countries follow payments”.

If the compromise passes in Brussels, it will bolster industry arguments that the US rules being drawn up to implement Dodd-Frank should be watered down to match the EU approach and ensure a level playing field.

Industry groups say reporting total government payments improves accountability by showing where the money goes, rather than where it comes from. The supplementary list of underlying projects still permits scrutiny of government decisions, even without a full commercial breakdown, which companies say will be costly to compile.

The issue poses a tricky political problem for David Cameron, the UK prime minister, who has publicly backed the principle of project-by-project reporting, even though the UK is home to some of the biggest listed extractive groups. Mr Drummond called on Britain “to use its leverage to make sure other member states get into line”.